How to Structure Commission-Based Pay for Remote Employees in Mexico
Commission-based compensation can be a powerful tool to drive performance, especially in remote sales or customer-facing roles. But when paying remote employees in Mexico, foreign employers must carefully design commission structures that are both motivating and legally compliant.
In this article, we cover how to structure commissions correctly under Mexican labor law, what tax implications to consider, and how to avoid costly compliance mistakes.
✅ Is Commission-Based Pay Legal in Mexico?
Yes—commission pay is legal in Mexico and is widely used, especially in sectors like sales, real estate, logistics, and call centers. However, commissions must be:
- Clearly documented in a written employment contract
- Paid in a predictable and timely manner
- Considered part of the employee’s base salary for labor and tax purposes
⚠️ Commissions are not considered bonuses or extras—they are part of regular compensation, and subject to income tax, social security contributions, and severance calculations.
🔍 What Mexican Law Says About Commissions
Under the Federal Labor Law (Ley Federal del Trabajo):
- Article 82 defines “salary” as all compensation, including commissions.
- Article 87 states that commissions are subject to mandatory year-end bonus (Aguinaldo) and vacation pay.
- If commissions represent a significant part of the employee’s income, they must be used to calculate:
- Severance pay
- Profit sharing (PTU)
- Social security contributions (IMSS and INFONAVIT)
This means you cannot treat commissions as “variable pay” to avoid employer obligations.
💼 Best Practices to Structure Commissions in Mexico
To avoid legal and fiscal issues, follow these key steps:
1. Define Commission Terms in Writing
Include commission terms in the individual employment contract or a detailed annex that specifies:
- Commission rate (e.g., 5% of closed sales)
- Payment schedule (e.g., monthly, upon payment received)
- Conditions (e.g., client must pay invoice)
- Cap or threshold (if applicable)
- Currency (must be clearly stated)
📄 In case of dispute, the burden of proof falls on the employer—clear documentation is essential.
2. Include Commissions in Payroll
All commissions must be reported in official payroll (nómina) and processed through SAT-approved systems. This ensures:
- Income tax (ISR) is withheld properly
- Social security contributions (IMSS, INFONAVIT) are calculated on the full salary
- Compliance with electronic payslip requirements (CFDI 4.0)
Never pay commissions in cash or outside payroll—doing so may trigger audits and penalties.
3. Plan for Variable Income Tax Rates
Mexico’s progressive income tax system can lead to higher withholding in months when commissions spike. Educate employees about:
- Fluctuations in net pay
- Tax brackets and year-end adjustments
- The importance of monthly vs. quarterly performance payouts
Consider offering salary smoothing options for roles with highly variable income.
4. Use a Payroll Provider or EOR
Foreign companies may struggle with local payroll rules. A reliable payroll provider or Employer of Record (EOR) can:
- Ensure legal classification of commissions
- Handle withholding, contributions, and reporting
- Prevent tax and labor law violations
This is particularly valuable when scaling sales teams or entering the Mexican market for the first time.
🚫 Common Mistakes When Paying Commissions
| Mistake | Risk |
|---|---|
| Paying commissions off-the-books | Tax evasion, fines, legal action |
| Not reporting commissions as salary | Miscalculated benefits and severance |
| No contract or unclear terms | Employee lawsuits and back pay obligations |
| Delayed or inconsistent payments | Legal claims for breach of labor law |
| Paying in USD without documentation | Currency issues and non-compliant tax reporting |
📊 Should Commissions Be Paid in MXN or USD?
Mexican law allows salaries and commissions to be paid in foreign currencies, such as U.S. dollars, if clearly stated in the employment contract. However:
- Payments must be reported in Mexican pesos for tax purposes
- Currency conversion must follow Banco de México’s official exchange rate
- Fluctuations in exchange rates can affect net income—be transparent with employees
🧾 How Commissions Affect Termination Pay
If an employee is terminated, all commissions earned and pending must be included in the final settlement (finiquito). Also, commissions are used to calculate:
- Severance pay (liquidación)
- Accrued vacation and Aguinaldo
- PTU (profit sharing), if applicable
Failing to account for commissions can expose your company to post-termination claims and penalties.
Conclusion: Get It Right from Day One
Structuring commission-based pay for remote employees in Mexico requires legal precision and payroll accuracy. What seems like a flexible incentive scheme can easily become a legal liability if mishandled.
Foreign employers should:
- Document everything
- Integrate commissions into payroll
- Comply with tax and labor laws
- Seek local expertise
